One and Done: Stage 3 Forward Auction Ends After Just One Round of Bidding
At the end of Stage 2 of the Spectrum Auction, I wrote about bidder fatigue and the hope that the FCC would drop its spectrum clearing target a couple of notches for Stage 3 to expedite the conclusion of a now seemingly interminable auction. Unfortunately, the FCC held fast to its incremental approach. As a result, the FCC attempted to clear 108 MHz in Stage 3, leading to a reverse auction that lasted 30 days and resulted in a $40.3B target for the forward auction. That was roughly double the amount of money bid in the forward auction in Stages 1 and 2. Also, with the Stage 2 forward auction concluding after only one round of bids, it seemed unlikely the skies would suddenly open up and start raining big-dollar forward bidders in Stage 3.
That has now proven true, as the Stage 3 forward auction commenced at 10am this morning and officially ended at 12:01pm. Like Stage 2, it lasted only a single round of bidding. Technically, it concluded even faster than Stage 2, which took 2 hours and 14 minutes before being declared over, a whole 13 minutes longer than today’s auction. Having taken six years to reach this point, the fact that we are measuring entire auction stages in minutes is disappointing to say the least.
The good news? The FCC is apparently feeling at least some urgency to move the auction along to a conclusion, announcing today that it anticipates launching the Stage 4 reverse auction on Tuesday, December 13. Unfortunately, with the Stage 1, 2, and 3 reverse auctions taking 28 days, 30 days, and 30 days respectively, even a fast-moving Stage 4 can’t conclude the auction in 2016.
While the forward auction bid totals have dropped in every stage of the auction as the amount of spectrum being sold has dropped ($23.1B in Stage 1, $21.5B in Stage 2, and now $19.7B in Stage 3), the totals have been fairly consistent. To declare the auction concluded, the FCC will at a minimum need forward auction payments to cover the reverse auction total, the $1.75B for repacking, and the several hundred million in auction expenses incurred.
As a result, the spectrum clearing target will likely need to drop until the total bids in the reverse auction are less than $17B. That would allow the FCC to cover the reverse auction payments for spectrum plus the roughly $2B in repacking costs and auction-related expenses if the forward auction still brings in $19B or so. However, since the total forward bids have dropped a bit in each stage, it’s reasonable to assume that trend will continue, meaning total reverse auction bids will need to drop significantly below $17B for the auction to finally conclude. That’s quite a way from today’s $40+B target and, barring some surprises, makes it likely the auction will see a Stage 5 and perhaps a Stage 6, taking us far into 2017.
When the National Broadband Plan was announced by the FCC in 2010 as a way of repurposing spectrum while reducing the federal deficit, broadcasters were, for the most part, decidedly uninterested in the reverse auction. Only after the FCC presented sky-high valuations for broadcast spectrum in the Greenhill Report did shareholders insist broadcast companies take a closer look. It now looks like that initial disinterest was fully justified, with most broadcasters having spent more on their auction participation and forgoing deal opportunities during the “quiet period” than they can ever hope to derive from the auction itself.
So broadcasters’ first instinct regarding the Spectrum Auction may well have been the right one. And that part about the excess auction proceeds reducing the federal budget deficit? Turns out that’s not happening either.